Business models, made infamous by the dotcom bust of the early 2000s (hopefully we can now let ourselves redeem them for a greater good), got their start a couple of decades earlier with the advent of the spreadsheet software for personal computers. Suddenly, you could easily “model” complex financial statements — or, as everybody liked to say, “play ‘what if?’”
The history of business models is that they are meant to be flexible. In fact, they are ideal instruments for driving transformation — by starting at one point and testing and experimenting until an optimum level is reached.
Just as spreadsheets welcome financial iteration to find the best combination of variables, business models do the same with customer transactions and strategy. The bigger the vision — the more transformative the goal — the important business models become.
Business models are great internal motivators. The what-if process has a way of encouraging your team to keep improving. They put a stake in the ground, and then they try and beat it.
Another reason business models are such effective instruments of transformation is their simplicity. In terms of length, they are usually only a few pages or more. Business models are manageable, practical documents. It is a common practice of development groups to use business plans exclusively to raise funding, and even then they quickly morph into a PowerPoint deck of ten to fifteen slides.
Similar to the one-sentence structure of the strategic positioning statement, business model brevity promotes clear thinking. Not too long ago, Alan Mulally (CEO of Ford), shared a one-page, handwritten set of notes and diagrams in a Fortune magazine article. It outlined his company’s entire plan for emergence from the recession and the return of Ford to health and leadership. It was comprehensive — Mulally’s list ranged from union agreements to a succinct brand promise to restructuring of $23.5 billion in debt. But it was also short, entirely contained on a single, 8 1/2-by-11 inch sheet of paper.
As writer Antoine de St. Exupery said, “Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.”
Business models are also tools for defending a strategic position. You can use them to help identify how competitors might modify their businesses to take advantage of your internal vulnerabilities.
When the Internet was gaining in popularity, Jack Welch, the CEO of GE, had his managers, already well-versed in the company’s limitations, create “destroy your business” scenarios as if they were written by competitors that had the same insider knowledge.